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U.S. dollar will "get a lot stronger than anyone can imagine"

The U.S. dollar is on a roll. The dollar index, which measures its value versus a basket of other world currencies, is at a four-year high. John Mauldin, best-selling author and chairman of Mauldin Economics says, get used to it.

Mauldin believes the dollar is going to keep rising and “get a lot stronger than anyone can imagine.” He says, “We are going to be trading stronger against nearly every currency.“

In other parts of the world, currencies are slipping as the U.S. dollar strengthens. Central banks in Europe and Japan are shifting policies to fight slowing growth and fend off deflation. Last month, the Bank of Japan boosted its quantitative easing strategy, and the yen fell to a seven-year low against the dollar on the news. The European Central Bank is expected to start its own QE program.

Even currencies in emerging markets are struggling against the dollar. In Russia, the ruble is being beaten down by slower growth and economic sanctions against the nation. Currencies of other major emerging markets like India and Indonesia are still trying to claw back after sharp declines following the announcement of the end of quantitative easing in the U.S. last year.

On Monday, the president of the Boston Federal Reserve bank, Eric Rosengren, said the rise of the dollar against world currencies is a sign of how strong the U.S. economy is and doesn't indicate a currency war is developing. "Various economies are in very different positions," Rosengren said.

Mauldin says the rise of the dollar puts the Fed in a more difficult place as far as raising rates. One of the problems of a stronger dollar is that it creates a deflationary environment. Deflation hurts the economy by encouraging a delay in spending if the assumption is that prices will be lower in the future. The Federal Reserve wants inflation and has a target of 2%. But the Fed isn't getting any closer to meeting its inflation target.

Of course, anyone who is heavily invested in gold wants inflation to rise too. The dollar’s strength isn’t good for the precious metal. Gold is bouncing along four-year lows. But Mauldin calls it “central bank insurance.”

He says, “I have health insurance; I have life insurance; I have central bank insurance. And I hope to dear God to never use any of those.”